Monetary Policy, Customer Capital, and Market Power (with D. Zeke), Journal of Monetary Economics, 2021, [Slides]

Abstract: In U.S. firm-level data, large firms increase their spending on customer capital significantly more than small firms following an interest rate decline. We interpret this evidence in a model with product market frictions where heterogeneous firms strategically advertise to build a customer base. When a firm advertises, it shifts customers’ demand away from competitors. This externality is especially severe when firms have a sizable existing customer base, discouraging smaller competitors and making them less responsive to interest rate shocks. The model provides a rationale for the rise in market concentration and market power in recent decades, while interest rates fell.

Working Papers

Abstract: We develop a theory of price bargaining in firm-to-firm trade where firms are concentrated and exert market power over the terms of trade. Our framework tractably nests a wide range of configurations of concentration and bargaining power among importers and exporters. To estimate the model, we build a novel dataset merging transaction-level trade data for the U.S. with firm-level data for both the U.S. importers and foreign exporters. Theoretically and empirically, we show that a shock to the exporter's costs can have a very different pass-through on import prices depending on the allocation of bargaining power and bilateral market shares. Our results shed light on two open questions on firms' participation in global value chains: the relationship between import and export concentration and markups; the role of firms in determining the tariff pass-through on import prices.

Abstract: This paper presents micro-level evidence on buyer power in input trade and evaluates its effects on the aggregate economy. I develop a framework to estimate market power in input markets when downstream firms' prices are determined through bilateral negotiations. Using trade and production data from France, I show that buyer power has a much larger impact on foreign than domestic input markets. Descriptive evidence on imported input prices reveals patterns consistent with a sizable buyer power of importers. I build an equilibrium model to explore the output and welfare implications of my estimates. Like an optimal tariff on imports, importers' buyer power can raise national income due to terms-of-trade effects, which more than compensate for losses in consumer surplus and trade volumes. In baseline calibrations, buyer power results in a net increase in welfare of about 2%.

Abstract: This paper studies the interaction between financial frictions, intangible investment decisions, and markups at the firm level. In our model, heterogeneous credit constraints distort firms’ decisions to invest in cost-reducing technology. The latter interacts with variable demand elasticity to generate endogenous dispersion across firms in markups and pass-through elasticities. We test the model’s predictions on a representative sample of French manufacturing firms over the period 2004-2014. We establish causality by exploiting a quasi-natural experiment induced by a policy change that affected firms’ liquidity. Our results shed new light on the roots of rising markups and markup heterogeneity in recent years.

Work in Progress

Labor Market Power, Self-Employment, and Development, with F. Amodio and P. Medina

Endogenous Currency Invoicing and Dominant Currencies, with C. Lenoir